Recently, there has been a massive demand for halal mortgage options in the US. This is because of the increase in the Muslim population, who seek products that are compatible with their beliefs and religion. Halal mortgages are a way for Muslim Americans to participate in home financing without compromising their Islamic beliefs. This article will explore the different halal mortgage options in the US.
What is a Halal Mortgage?
Halal mortgages are also called Islamic mortgages, and they’re structured to comply with the legal standards of the Shari’a law. The main difference between a halal mortgage and a conventional mortgage is the prohibition of Riba. Instead of interest, Islamic banks and financial institutions use several Shariah-compliant contracts like Musharaka, Murabaha and Ijara for home purchases.
Understanding Halal Mortgages
Halal mortgages are created to provide Muslims with a way to buy homes without violating the Islamic law against usury and interest. Besides, halal mortgages are different from conventional interest-based mortgages. The halal mortgage model adheres to Islamic principles and promotes a better ethical approach to financing. This is seen in the profit-sharing model, where the bank and the client share the profits and investment risk.
Why You Should Choose a Halal Mortgage
1. Community development
Halal mortgages promote equal wealth distribution and financial inclusivity, contributing to community development and social justice. The rules guiding halak mortgages ensure that the financial transactions contribute positively to society. So, halal mortgages support economic objectives, reduce inequality and foster community welfare.
2. More beneficial than the conventional mortgage options
Other than the ethical advantage of halal mortgages, it also offers better benefits. Some are protection from fraud, more stable pricing, financial stability and investment in tangible assets. Halal financing has unique advantages, like improved risk management and avoiding debts.
3. Ethical financing
Choosing halal mortgage options is a means of engaging in investment that promotes ethical belief. Halal mortgages are based on Islamic principles that emphasize fairness, transparency and equity. With a halal mortgage, you can avoid exploitation and participate in the mutual benefit of the investment.
4. Peace of mind
Choosing a halal mortgage for many Muslims is more than financial advice; it is based on having spiritual and mental peace of mind. Knowing your home financing adheres to your faith, and that there are no unethical dealings in securing a home brings a sense of contentment and comfort.
Types of Halal Mortgages
1. Musharakah
Musharakah is a partnership agreement involving partners that share the profits and losses in a business. It allows the distribution of the gains and losses among the partners based on pre-agreed proportions. Musharakah Mutanaqisah is used in home financing. It’s also called diminishing partnership. The structure is a combination of contracts like ijarah, bay and musharakah.
The Musharakah aspect is between the bank and the client. It involves a shared capital of 90% and 10%. Then, the bank rents the house to the client via an Ijarah contract. The client later buys the house, gradually representing the bank’s share till the client completely owns the house. Later, the client buys the house from the bank via a sale contract called Bay.
2. Murabaha
Murabaha is a contract whereby the bank buys and sells the house to the client at a mark-up price. It’s like cost-plus financing, where the bank sells to the client at a profit with payments made in installments.
3. Ijarah
Ijarah is called Lease to Own and involves a lease agreement between the bank and the client. It eventually leads to the transfer of the property ownership.
Halal Mortgage Options for Muslims
UIF Corporation (UIF)
UIF is a financial services corporation that’s based in Michigan. Muslims avoiding interest-based mortgage options can use UIF’s commercial home financing services. They also have offers for Muslims who wish to purchase new homes or refinance an existing house.
UIF is one of the best halal mortgage options in the US, as the principles have been certified by the Shariah board.
Lariba
Lariba is another halal mortgage option in the US that offers interest-free home financing solutions. The company aims to provide Riba-free services to people of all faiths. The “Declining Participation in Usufruct” (DPU) governs their home financing business. It entails purchasing the property on behalf of the client.
The client pays the company for the property monthly for over 30 years. The client has the option of registering the property under their name immediately.
Guidance Residential
Guidance Residential is famous for its leading efforts in providing Shariah home financing solutions in the US. It also offers a co-ownership model (diminishing Musharakah) to allow clients to purchase or refinance their homes without paying interest. They have unique features like ethical financing, transparency and co-ownership reduction over time.
Guidance Residential is a halal mortgage option in the US that shares the risk with the client in cases like natural disasters or foreclosure.
Ijara Community Development Corporation
This enterprise specializes in providing halal mortgage solutions via lease-based financing models. Their principle removes interest and aligns with the principles of Sharia law.
Devon Bank
Devon Bank is one of the best halal mortgage options in the US. It has been offering halal financing services since 2003. They have special programs for first-time home buyers. Devon Bank is certified by the Shariah board, and they have specialized product knowledge. Also, their services are fast and friendly.
Bottom line
Halal mortgage options in the US? Yes, you’re in the right place. Choosing a halal mortgage option has many benefits and, most importantly, helps you uphold your faith. We’ve delved into the different aspects of halal mortgages and types, so you can check through and learn more.